Uralkali has a license to develop the Ust-Yaivinsky field of the Verkhnekamskoye deposit. This license is valid until 2024. As announced previously, the company has been preparing a feasibility study for the construction of a new mine to be completed by the end of 2008.
One of the conditions of the Ust-Yaivinsky field license states that by December 15, 2008 Uralkali is required to prepare design documentation for the construction of a new mining facility to develop a licensed field and have that design documentation approved by the relevant authorities in due course. The design documentation needs to be filed with the state expertise for approval.
While preparing the feasibility study and the design documentation for the new mine construction, the company faced a number of obstacles beyond its control. After getting the local authorities’ approvals on the borders of the land plots, necessary to design and construct the new mine, in August 2008 Uralkali applied to the Environmental Management Agency of the Perm region to acquire the right to rent these land plots. However, since the plots are located in protected forests (“green zones”), in September 2008 the Environmental Management Agency had to refer the issue to the Federal Forestry Agency for clarification. In October 2008, the Forestry Agency concluded that under the provisions of the Forest Code, the protected forest areas “could not be let for the development of mineral deposits”. Consequently, Uralkali will not be able to meet the deadline for the required filing.
At the same time, the global financial crisis has impacted all commodity sectors worldwide and created uncertainty in the agricultural industry and as a result, in the fertilizer market. Due to current global economic conditions, uncertainty in the potash market and the turmoil in the global financial markets, Uralkali’s Board of Directors concluded that the company is unable to take a decision on the construction of the new mine in the Ust-Yaivinsky field which, according to preliminary estimates, requires investments totaling around 3 billion US dollars.
On December 12, 2008, Uralkali’s Board of Directors decided to revise its approach to the development of the Ust-Yaivinsky field and prepare design documentation for the development of the Ust-Yaivinsky field by linking it to the company’s Mine 2, rather than through the creation of a new mine, Mine 5, as originally envisaged. This alternative project would likely be less technically complex, would likely cost less and could likely be started earlier. Moreover, it would help ensure longer utilization of Mine 2.
On December 12, 2008, Uralkali applied to the Federal Agency for Subsoil Use (Rosnedra), asking to amend the license agreement and extend the deadline for filing the relevant design documentation by a further 1.5 years. Although Uralkali has the right to apply for revision of the terms of the license, including in case of material changes or non-compliance, the Agency may refuse any such application, and the license would be terminable in accordance with its terms.
Uralkali may reconsider its plans on the development of the Ust-Yaivinsky field if the license term is extended and both global financial and potash markets recover.
To answer investors’ questions, Vladislav Baumgertner, Uralkali CEO, is holding a conference call on 12 December 2008 at 6 p.m. Moscow time. The details of the conference call are available at https://uralkali.com/en/Investors/investor_calendar/
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